Recommendation 21

The financial resilience of the water sector has weakened. While Water UK pointed out to us that some companies are resilient, Ofwat has signalled its concerns about the financial resilience of 10 of the 16 major companies.60 In 2023–24, 10 companies could not cover their interest payments with cash from operations.61 Defra told us that Ofwat has powers to prevent companies from paying dividends if their financial resilience is insufficient, known as “cash lock-up”. Ofwat told us that it is exercising this power for three companies currently, including Thames Water.62 The Consumer Council for Water told us that Thames Water is the extreme case of increased financial risk.63 We noted that Thames Water is now having to seek new investors to remain solvent, since it only has enough cash to stay afloat until 2026.64